EUR/HUF likely to remain sideways at 325 level over coming year; political risks remain high: Commerzbank

The EUR/HUF currency pair is expected to remain sideways at 325.00 level over the course of coming year, but this is not to ignore the significant political risk which surrounds an otherwise tranquil forecast, according to the latest research report from Commerzbank.

Sizeable EU Cohesion funds for Hungary are frozen by EU audit procedures; the government has budgeted for a shortfall from this source for the remainder of the year, and senior officials concede that 10 percent of all project funds may never actually be received.

Hence, it does not come as a surprise that local media is quoting a leaked government report that Hungary could lose nearly HUF500 billion in an adverse scenario: this amount would be made up of HUF103 billion, which is the 10 percent just mentioned, plus another HUF380-390 billion of outright EU sanction for the irregularities themselves.

Hungary's public procurement system carries a low rating with the EU: it was supposed to be reformed entirely when the 2014-2020 programme commenced – but apparently major improvement has not occurred. What is more, this funding loss is from just tendering and accounting issues.

Additionally, Hungary is in the same boat as Poland in terms of facing Article 7 or other EU sanctions at a systemic level. CEE countries pledge to vote against sanctions on one another, but one has to question whether some could come under enough pressure so that the 'show of unity' could be disrupted.